lecture 2 chapter 4

Question 1

demand

Answer 1

• You want it
• Can afford it
• Have made a definite plan to buy it

Question 2

Supply

Answer 2

a firm supplies a good or service.

• Has the resources and the technology to produce it
• Is willing to produce it
• Has made a definite plan to produce and sell it.

Question 3

Market:

Answer 3

a group of buyers and sellers of a particular good or service.

• Buyers as a group determine the demand for the product
• Sellers as a group determine the supply of the product

Question 4

Markets take many forms:

Answer 4

• Physical markets
• Non-physical markets/ virtual markets.
• Auction market.
• Market for intermediate goods
• Black market
• Markets of different structures: monopoly, oligopoly, monopolistic competition and perfect competition.

Question 5

Competitive market

Answer 5

a market in which there are many buyers and many sellers so that each has a negligible impact on the market price.

Question 6

Price and quantity

Answer 6

determined by all buyers and sellers as they interact in the marketplace.

Question 7

Monopoly:

Answer 7

only seller in the market and this seller sets the price.

Question 8

Quantity demanded:

Answer 8

the amount of a good that buyers are willing and able to purchase.

Question 9

Demand schedule

Answer 9

a table that shows the relationship between the price of a good and the quantity demanded

Question 10

Demand curve

Answer 10

a graph of the relationship between the price of a good and the quantity demanded.
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Question 11

Law of demand

Answer 11

the negative relationship between price and quantity demanded: ceteris paribus, as price rises, quantity demanded decreases; as price falls, quantity demanded increases during a given period of time, all other things remain constant.

Question 12

increase in demand.

Answer 12

Any change that increases the quantity demanded at every price shifts the demanded curve to the right

Question 13

decrease in demand

Answer 13

Any change that reduces the quantity demanded at every price shifts the demand curve to the left

Question 14

5 main factors that change demand are

Answer 14

• Income
• The prices of related goods
• Expected future prices.
• Population
• Preferences

Question 15

Factors that shift the demand curve

Answer 15

Income:

• Normal good: a good for which, other things equal, an increase in income leads to a decrease in demand.
• Inferior good: a good for which, other things equal, an increase in income leads to a decrease in demand.

Question 16

Prices of related goods:

Answer 16

• Substitutes: two goods for which an increase in the price of one leads to an increase in the demand for the other
• Complements: 2 goods for which an increase in the price of one leads to a decrease in the demand for the other.

Question 17

Factors that shift the demand curve

Answer 17

• Tastes
• Expectations
• Number of buyers

Question 18

Quantity supplied:

Answer 18

the amount of a good that sellers are willing and able to sell

Question 19

Supply schedule

Answer 19

a table that shows the relationship between the price of a good and the quantity supplied

Question 20

Law of supply

Answer 20

the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises.

• Downward sloping curve.

Question 21

Market supply

Answer 21

the sum of supplies of all sellers.

Question 22

6 main factors that change supply of a good are.

Answer 22

• The prices of factors of production
• The prices of related goods produced
• Expectation
• The number of suppliers
• Technology

Question 23

Any changes that increase the quantity supplied at every price shifts the supply curve to the right and is called an

Answer 23

increase in supply.

Question 24

An change that reduces the quantity supplied at every price shifts the supply curve to the left and is called a

Answer 24

decrease in supply

Question 25

The main factors that change supply of a good are

Answer 25

• The prices of factors of production
• The prices of related goods produced
• Expected future prices
• The number of suppliers
• Technology

Question 26

More suppliers of a good

Answer 26

greater supply (shifts the supply curve right)

Question 27

Advances in technology create new products and lower the cost of producing existing products.

Answer 27

• Advances – increase supply and shift the supply curve rightward.

Question 28

Equilibrium

Answer 28

a situation in which the price has reached the level where quantity supplied equals quantity demanded

Question 29

Equilibrium price

Answer 29

the price that balances quantity supplied and quantity demanded:

Question 30

Equilibrium quantity

Answer 30

the quantity supplied and the quantity demanded at the equilibrium price.

Question 31

Surplus

Answer 31

quantity supplied is greater than quantity demanded.

Question 32

Shortage

Answer 32

quantity demanded is greater than quantity supplied.

Question 33

Prices above the equilibrium price

Answer 33

• a surplus forces the price down.

Question 34

At prices below the equilibrium price

Answer 34

a shortage forces the price up.

Question 35

At the equilibrium price

Answer 35

• buyers’ plans and seller’s plans agree and the price doesn’t change until an event changes demand or supply.

Question 36

Law of supply and demand:

Answer 36

the claim that the price of any good adjusts to bring the quantity demanded for that good into balance.